Wall Street Breakfast: Nadella Testifies

Nadella testifies

As the legal battle over Google's (GOOG, GOOGL) alleged dominance continues, it looks like even the CEO of Microsoft (MSFT) resorts to using the search engine to start his day. “You get up in the morning, you brush your teeth and you search on Google,” Satya Nadella said on the stand on Monday at Google’s antitrust trial, referring to the dominance of the app.

Alarm bells: The tech executive warned about the advent of AI, which could allow Google's monopoly to strengthen further, as it could use the massive profits it makes from search to pay for exclusive rights to content it can use to improve its search AI. Despite investing $100B, Nadella testified that Microsoft’s rival search tool Bing is a “very, very low share player.” Microsoft executive Jonathan Tinter previously testified that the company was unable to seal a deal to add Bing on Apple (AAPL) products, even though it was offering better terms than Google. Even Microsoft’s own phone is required to use Google Search to license the Android mobile operating system.

Backdrop: The U.S. Department of Justice is accusing Alphabet’s search division of unlawfully maintaining a monopoly by paying $10B a year to make its search engine the default option. Google denies the allegations. The government is using the case of Bing and Microsoft's might behind it as evidence that even with massive resources, no one can trump Google. A decision in the case is not expected until next year.

SA commentary: Cavenagh Research pointed out the similarities with the Microsoft antitrust case of the late 1990s. "The judge will likely prohibit Google from having exclusive contracts with Apple and/or Android OEMs that require Google to be the default search engine," he predicted, but added that the trial is "quite insignificant" for Google's commercial success. Livy Investment Research also believes the risks from the trial are remote. "Instead, we are more concerned over recent findings disclosed from the trial, which suggest increasing risks of structural market share loss to rivals." (25 comments)

Reassuring outlook

Tesla (TSLA) turned around a premarket loss and moved into positive territory on Monday, closing up 0.6%, as investors sized up the Austin-based automaker's Q3 deliveries report. Tesla delivered 435,059 vehicles during Q3, missing expectations, on account of longer than expected downtimes for factory upgrades. Crucially, Tesla remains committed to the target of 1.8M deliveries for the year. Wedbush analyst Dan Ives said the downtimes may have shifted about 20K vehicle deliveries into Q4. Despite the sequential decline in deliveries, Seeking Alpha analyst Poonam Arora believes Tesla has high growth in revenues and earnings locked in for at least the next ten years. (46 comments)

Drilling in check

U.S. shale producers plan to keep drilling under wraps even if oil prices top $100/bbl, citing the need for financial discipline during what they see as President Joe Biden's "war" on fossil fuel production. Many companies cited the Biden administration's decisions to limit drilling on federal lands and waters as the main reason they are restricting investments, as well as ongoing permitting delays and often hostile rhetoric from the administration. "It's political power," asserted Continental Resources founder Harold Hamm. "They believe that is what their base wants." Note that U.S. shale companies reinvested most of their capital in production this year, although there are fewer active U.S. oil rigs. (71 comments)

Not misleading

In a win for the fast-food industry, U.S. District Judge Hector Gonzalez dismissed a lawsuit accusing both McDonald's (MCD) and Wendy's (WEN) of misleading customers in advertising about the size of their hamburgers. Judge Gonzalez ruled that he did not see proof that the fast-food chains delivered smaller burgers than advertised, or that the plaintiff had even seen ads for the McDonald's Big Mac and Wendy's Bourbon Bacon Cheeseburger that were the basis of the lawsuit. The ruling will likely improve the legal position of other chains such as Yum! Brands' (YUM) Taco Bell and Restaurant Brands' (QSR) Burger King, which are also facing similar lawsuits. (7 comments)

Today's Markets

In Asia, Japan -1.6%. Hong Kong -2.7%. China +0.1%. India -0.5%.
In Europe, at midday, London +0.4%. Paris -0.2%. Frankfurt -0.3%.
Futures at 6:30, Dow +0.1%. S&P +0.1%. Nasdaq flat. Crude -0.1% to $88.72. Gold -0.3% at $1,841.90. Bitcoin -2.6% to $27,588.
Ten-year Treasury Yield +1 bp to 4.70%.

Today's Economic Calendar

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